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Half of UK firms restricted by DB funding costs

Almost half of UK companies (49 per cent) feel increased costs of funding their defined benefit pension scheme has reduced the remuneration packages their company is able to offer.

Almost the same number (48 per cent) feeling that this will continue to be the case in the future.

This is according to research released today by Aon Consulting which surveyed representatives from the UK’s largest DB schemes about the impact that funding these schemes had on their company’s ability to compete, their share price, the price of goods and services and remuneration package.

More than one in five companies (22 per cent) also felt the increasing cost of funding their DB schemes is impacting negatively on their share price, with a fifth (20 per cent) anticipating this will continue to be the case in the future. However, these figures have decreased significantly since Aon conducted similar research in 2006, when 36 per cent felt the increased costs of funding their DB scheme was impacting their share price, rising to 38 per cent when asked if this would be the case in the future.

The research also highlighted a marked relaxation among companies to the impact of pension funding costs on their competitiveness. Almost a third of companies (31 per cent) were concerned that the increased cost of funding their DB scheme is already negatively affecting their ability to compete effectively (compared to 50 per cent in 2006). This rose to 36 per cent when asked if their projected pension commitments in the future would continue to impact negatively on their ability to compete (compared to 58 per cent in 2006).

Rising pension costs associated with DB schemes were also seen to be having an impact on the price of goods and services, with 30 per cent of companies stating that they have already had to increase prices. Looking ahead, a third (33 per cent) of those surveyed forecast that pension costs would continue to increase the upward pressure on the cost of their goods and services in the future. However, company concerns were weaker than in the 2006 survey when 40 per cent of companies stated that they had already had to increase their prices due to rising pension costs and 54 per cent forecasting continued price increases.

Aon Consulting principal and senior actuary Paul McGlone says: “The funding of defined benefit schemes is still a considerable problem for many UK companies. With the rising equity markets and the rise in bond yields that we have seen over the past year, the strain many companies seem to have been under regarding their pension scheme does appear to have eased slightly.”


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